Update On New Government Regulations

A few issues back, I wrote about a new government
regulation called the Mortgage Disclosure Improvement
Act (MDIA). It calls for new procedures to tighten
the Truth In Lending disclosures and provides the
borrower with times to digest the information they
are provided before they can close the transaction.

The regulation takes effect with applications that
are begun on or after July 30, 2009. Our lenders
have provided more detailed procedures that will
offer some clarity to everyone's expectations on
how escrow closings will now be handled.

Here are some of the key provisions of MDIA:

* No fees except a bona fide and reasonable credit
report fee may be collected from the borrower
until the lender has mailed the Initial Disclosure
and three full days have passed. The day the
disclosures are mailed is not counted as day 1.

Key Point:

This will, in most cases, delay the ordering of
the appraisal that a borrower pays for until after
the time requirement has been met.

* The law requires that the lender is responsible for
the disclosures. In those cases where we broker the
loan to the ultimate lender, the time frames will be
determined by the lender's disclosures. In the case
of our creating the loan using our mortgage banking
capabilities, we are the lender for this purpose, and
we control the disclosure timing exclusively.

Key Point:

Real estate agents have recommended for a long time
that potential buyers go through a loan application
and get pre-qualified and pre-approved, before engaging
in a home purchase. Now, more than ever, borrowers
need to heed this advice so that we can be beyond
some of these time limits and move quickly, or plan
on much longer escrows to close their transactions.

* Any time there is a change in loan terms causing the
Annual Percentage Rate (APR) to vary by 1/8% or
greater (up or down) from the previous disclosure,
the lender must re-disclose.

Key Point:

All parties are going to need to work together and
commit to their fee structures for things to go
smoothly. Escrow fees, title insurance and endorse-
ment fees, notary fees, messenger costs, in addition
to the lender fees need to be as precise as possible
to stay close to the 1/8% APR variance. A big
variable that may be difficult to nail down originally
is the pro-rated interest for the portion of the
month in which the loan funds. This figure also gets
calculated into the APR and may trigger additional
disclosures.

* If there is a re-disclosure that is necessary due to
the APR changing by 1/8% or greater, loan documents
cannot be signed until another specific 3 business
days have passed from the borrower's receipt of the
re-disclosure. The term specific business day is
defined as Monday through Saturday, with Sunday and
Federal holidays being excluded.

Key Point:

Most of the regulatory provisions talk about the
Truth In Lending documents being delivered by US
Mail. The presumption is that once mailed, they
are considered received by the borrower three days
after. So if a re-disclosure is required, three
days will pass before "receipt" and another three
days for review of terms will transpire before loan
documents can be signed.

We are seeking clarification to see if e-mail
delivery can be meet the delivery requirements to
shorten the initial 3-day "mailing" period.


All of our lenders are struggling to define procedures
that they can administer to be in compliance. Many of
the terms outlined above only came to us in the last
couple of days.

If you are involved in a new transaction over the next
30 to 60 days, you may find that your transaction will
be a test case to work out all the details.

All of us need to give realistic forecasts to help
our clients develop their expectations. It would not
be surprising to see modifications to these procedures
and all of us having to adapt to unanticipated changes.

Stay tuned...!